Measured Start to Redbox Game Rentals

Redbox appears to be soft-pedaling forays into video game rentals with limited titles and quantities available in three test cities, an analyst said.

The largest DVD kiosk rental operator, which last weekend began testing $2/per day game rentals at 150 kiosks in Austin, Texas, is also conducting trial runs in Reno, Nev., and Wilmington, N.C.

Sales and rentals of new and used video games represent a near $10 billion market, with Blockbuster generating $200 million last year in game rental revenue. Blockbuster has said it would begin testing by-mail game rentals this year.

In a survey of kiosks in Austin, Eric Wold, analyst with Merriman Curhan Ford in New York, found an average of 2.8 video game titles and 3 video game SKUs per kiosk — the latter representing the number of game platforms offered for a single title.

Wold was surprised the quantity and percentage of titles offered didn’t reflect market penetration of game consoles, with only 28% of Redbox kiosks renting Wii games, despite the fact the Nintendo platform has the has the highest U.S. penetration, with 28.8 million units. Conversely 39% of kiosks held Sony PlayStation 3 titles, while domestic market penetration for the PS3 console is 12.5 million units, according to Wold.

Games for the Xbox 360, with U.S. penetration of 19.9 million units, represented 33% of the SKUs.

“We had hoped to see a larger selection initially when consumers are likely to form initial impressions of the service and determine whether or not they will return at a later date,” Wold wrote in a June 30 note.

To be deemed successful, the analyst said the tests have to determine whether the revenue and margin on game rentals at least equals that of supplanted DVD (and soon Blu-ray Disc) rentals.

“Given that the average rental period for a game is likely to be longer than for a movie (to give time to solve the game) along with the $2/day rental price, we expect the returns to be strong as long as the appropriate mix of games is available,” Wold wrote.